SIG revenue up to £2.9bn but shares fall amid loss

Shares of Sheffield-based European building products distributor SIG plc fell about 9% on Friday after it said it made a statutory loss before tax of £51.2 million in 2017 after a loss of £110 million in 2016.

Analysts at Peel Hunt wrote: “2017 was a year of significant change for SIG led by the management change.

“The process of returning the group to sensible performance levels is well underway with a cadre of non-core businesses sold, a raft of costs removed, a refocussing of the business on servicing customers and a drive to improve the working capital.

“We have cut our top-end forecasts due to the UK but expect the low-end market forecasts to rise.

“There is no change to medium-term targets which, when achieved, make the shares look very cheap.

“Remains a Buy.”

On February 1, SIG said it suspended a number of staff after it “identified a historical overstatement of profit relating to the year ended 31 December 2016 and prior years and relating to the half year ended 30 June 2017.”

On Friday, SIG said: “Following a disappointing 2016, the group has taken a number of preliminary actions over the past year to stabilise the business under its new leadership.

“In particular, management has restored customer focus by reducing the distraction from internal initiatives, is bringing operating cost increases under control, is starting to reduce levels of working capital and debt (including through debt factoring) and is simplifying the business through ongoing portfolio management …

“The group has also looked to address the rapid rise in costs across the business, eliminating duplication and reducing discretionary expenditure.

“Group functions have been significantly scaled back and a number of layers of management have been removed, including the UK & Ireland executive management team.

“The back office support functions for the insulation and roofing businesses in the UK have been combined and co-located in a single shared services centre in Sheffield.

“A number of headcount reductions have also been made in the back office team in Germany.

“The group has terminated the lease on its corporate office in Paddington and will move to smaller, fit-for-purpose premises next month.

“SIG’s historical head office in Hillsborough, Sheffield, has been sold and will be vacated later this year.”

SIG CEO Meinie Oldersma said: “In a year of challenge and change for SIG, I am pleased to be reporting results for 2017 in line with expectations, delivering the first improvement in underlying operating profit for three years, including the benefit of property profits.

“We have achieved much this year, beginning to stabilise the business, returning SIG Distribution to underlying profitability and rationalising the loss-making UK Offsite Construction division.

“We have begun to get a grip on operating costs and working capital and we have made significant steps in refocusing the portfolio, exiting from eleven businesses, as we continue to strengthen our balance sheet.

“As the group moves into 2018, we are seeing increasingly confident markets across Mainland Europe and Ireland, but also the first signs of capacity and labour constraint in buoyant construction markets.

“In contrast, we are seeing an increasingly challenging environment in the UK created by macro uncertainty and recent events in the construction industry.

“Notwithstanding this outlook, we see considerable potential for a significant improvement in operational and underlying financial performance, with execution largely within management’s control, and we are working hard to ensure effective delivery.”